What Yum! Brands Tells You About the World Economy

Yum! Brands is the owner of several fast food chains and is in the perfect spot to benefit from its global position.

NEW YORK (TheStreet) -- Fast food chains and mass market restaurants can provide insightful indications on the global economy, its strengths and weaknesses. To that end, one of the most insightful companies reported Wednesday night. The owner of well-known franchises KFC, Pizza Hut and Taco Bell,Yum! Brands (YUM), announced mixed second-quarter numbers, disappointing market expectations. As a result, on Thursday shares were down nearly 6% at midday.

Yum! Brands is listed in the U.S. However, it is its China division, with more than 6,000 restaurants, that made more money than any other division in any other part of the world. There is a clear advantage in growing within a country that enjoys a 7%-plus economic expansion when other western countries have an economic growth under 2%. In China, Yum! reported a 15% same-stores sales rise, which compares nicely with a 3% decline at the ex-China Pizza Hut division or with the 2% sales increase at the ex-China Taco Bell and KFC division over the same period.Does this suggest you should buy companies with China exposure?

Hold on a second. For Yum! Brands, comparisons with a year ago were easy. In 2013, same-store sales were down 20% after some food hygiene scandals reported by the Chinese media kept consumers away. China is a good growth market, but it is not a flawless market. How about elsewhere in the world?

Apart from Taco Bell, Yum! Brands are not seeing any same-store sales growth in the United States. Consumers are still cautious in their spending and held back by concerns for their health and by the high level of competition. Pizza Hut,which seems the worst impacted, is considering improving its offering. Its results are largely boosted by the emerging countries. Pizza Hut, a new division that includes all Pizza Hut results outside China and India, saw a 2% decline in the U.S., but a 4% increase in emerging markets. The same is true at KFC.